Profiting from Hedge Funds: Winning Strategies for the Little Guy

Chapter 22

Conclusion

The book detailed several strategies for shadowing the best-performing money managers. The details of the holdings of a money manager are indeed a mine of information. Regulatory requirements mandate that the U.S. long portfolio holdings of all managers be disclosed through their quarterly 13F filings. While having an overview of what the managers are up to via their 13Fs is an advantage, the investor needs to be fully aware of the drawbacks.

• Time delay: There is an interval between when a manager trades a stock and when that information becomes public. Depending on when within the quarter the trade was made, the information can be from 45 days to three-and-a-half months old. This risk can be mitigated by avoiding managers who trade actively. For some of them, many trades would not make it to the 13Fs, as the round-trips are done within the same quarter. Employing manager bias spreadsheets to compare the price range the manager traded at with the price when the 13F became public can reduce this risk further. Bias spreadsheets sometimes make it possible to pocket the security at prices below the manager’s cost basis; many value managers acknowledge that they expect their picks to dip immediately after stakes are established.
• U.S. long only: As the regulatory filings require only U.S. long stock holdings to be disclosed, it does not paint a full picture of the manager’s activity. Positions such as shorts, derivatives, bankrupt businesses, international stocks, ...